Early last week many were worried that a major correction was starting. By the end of the week, with two solid days of gainers, others were concerned that they had missed out on a major market bull run.
Its perfectly normal. When stocks are going down, emotionally we want out. When stocks are going up, emotionally we want in.
That is why non-emotional traders make money, and emotion-driven retail investors lose.
I am not a licensed financial advisor. But I have a Phd or street knowledge having played the market for more than 35 years, 12 as the business editor of The Courant, and trust me, I have learned a lot from my losses (one doesn’t learn too much from winning, other than to be cocky).
Now let’s look at the facts. The major indices have risen about 50 percent since the March bottom (which was called accurately by CNBC’s Mark Hanes). Its been a virtual straight shot.
So now you have to figure out where the odds are. Are the odds better that it will shoot up another 20 or so percent, or are the odds better that soon, the markets will correct – which is healthy.
I am betting that the market will go up at least for a few more days, especially Monday since Friday’s advances fueled Asian and European markets Monday. But within a week or a month, there will be blood on the street.
What can you do to prepare? If you aren’t in the market, look for sectors that haven’t participated – health care, natural gas – and put a little in. Little at a time. But save your firepower for the correction.
If you are totally in like my wife and I were a month ago, you can do like we did. Every up day we would take a few percent off the table. We now have more than 25 percent of our investments and retirement funds in cash. We will continue to do that until the correction. And then we will SLOWLY put SOME of the cash back in.
I also urge you to watch CNBC’s Mad Money program. You can learn a lot from Jim Cramer. Listen for his advice on the market, don’t listen that much for his stock picks. Retail investors should stay away from individual stocks unless you have enough money to establish your own diversified mutual fund.
And remember his saying – which of course was borrowed from those before him – Bulls can make money, Bears can make money, Pigs get slaughtered.
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The relevant saying is: Pigs get fat, hogs get slaughtered.
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